MINING:

Nev. firm seeks place in emerging lithium market

WINNEMUCCA, Nev. -- Buried just below the arid sagebrush steppe of this high desert region lies a mineral resource that could one day power millions of American cars and trucks.

It's not oil, or natural gas, or even hydrogen.

Locked inside the teal-gray clay less than 300 feet below the surface are millions of tons of lithium, a lightweight element major automotive companies have branded as the low-carbon fuel of tomorrow.

The Kings Valley deposit -- created by massive volcanic eruptions more than 15 million years ago -- will soon be unearthed, processed, refined and shipped off to be manufactured into batteries that will power a new generation of hybrid electric and plug-in vehicles.

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With more than 11 million tons of lithium carbonate potential, the site is believed to be the fifth-largest lithium deposit in the world and promises to brighten America's prospects for energy independence, according to developer Western Lithium USA Corp.

"What we're doing is matching our development time frame with the growth of the electric car market," said Jay Chmelauskas, president of the Reno-based company, which hopes to open a major mine at the site by 2014. "That is happening faster than we expected."

At full production, the Western Lithium mine could churn out more than 30,000 tons of lithium carbonate equivalent per year, with an additional 125,000 tons of potassium sulfate, a feedstock for fertilizer, according to company projections.

"The first stage of a potential multi-stage project is envisioned to supply enough lithium for up to 1 million electric and hybrid cars annually that would use lithium-ion batteries to store power," Chmelauskas said.

The company plans to drill about 80 to 100 holes this summer to further confirm the lithium deposit and is scheduled to begin early mine planning by the end of the year.

A global rush

Western Lithium is one of nearly a dozen firms that have announced plans to open or expand lithium mines around the world, according to R. Keith Evans, a geologist and industry consultant. At least 60 more projects are in various stages of exploration, with at least a dozen centered in the Western United States, Evans said.

A number of firms are exploring for lithium in southwestern Nevada, where currently only one producer extracts small amounts of the mineral from evaporated brine pools.

Bo Elgby, manager of mine development at Western Lithium, discusses the first phase of mine development at the foot of Nevada's Montana Mountains. Photo by Phil Taylor.

Another startup company is developing plans to filter lithium from geothermal brines near California's Salton Sea, a project that is "either going to be a failure or a roaring success," said Evans, who estimated the Salton Sea project's resource potential at more than 1 million tons of lithium.

Still other firms are exploring the possibility of milling and processing lithium from a vast hardrock deposit in western North Carolina estimated to contain up to 2.5 million tons of the mineral.

That project, and Chemetall Foote Corp.'s Silver Peak Mine in Nevada, received nearly $30 million in federal stimulus funds to boost production of battery-grade lithium carbonate and lithium hydroxide.

The mining firms are racing to meet what many believe will be a surging global demand for lithium, a relatively inexpensive mineral better known for its use as a mood stabilizer and strengthener in materials like ceramics, glasses and metal alloys.

Automakers are planning major rollouts of vehicles powered by lithium-ion batteries as early as this fall, and the Obama administration has set a goal of having at least 1 million plug-in hybrid vehicles on the road by 2015.

To jump-start that goal, the administration last fall announced nearly $1 billion in Recovery and Reinvestment Act grants for lithium battery material suppliers, battery manufacturers and a lithium battery recycler.

Can U.S. firms compete?

The federal funding is intended to prevent the United States from trading a dependency on foreign oil for a dependence on foreign batteries and their constituent materials. Currently only 3 percent of the world's lithium supply comes from the United States -- all of it from Chemetall's brine operation in southwest Nevada.

Global production is dominated by a few large companies in Chile, Argentina, Australia and China, and nearly half of the world's reserves lie buried in Bolivia, where a leftist government has refused repeated overtures from Western firms hoping to develop the reserve.

Major Lithium-Producing Countries

(Metric tons lithium carbonate equivalent)

Source: Roskill 2009

Lithium was also among several strategic minerals recently discovered in Afghanistan, along with copper, rare earths and gold worth nearly $1 trillion, according to a Pentagon report cited by the New York Times (Greenwire, June 14).

But suggestions that Afghanistan could become the next "Saudi Arabia of lithium" are premature, said Jack Medlin, of the U.S. Geological Survey, because estimates of the mineral are highly speculative and rely on limited field testing. Observers also note that Afghanistan -- war-torn and lacking the political and material infrastructure needed for industrial mining -- is decades away from extracting any of those minerals.

For now, that leaves nearly two-thirds of world lithium production in the hands of three companies: FMC Corp., Sociedad Química y Minera de Chile S.A. and Chemetall, a subsidiary of Rockwood Holdings Inc.

"If this is such an important mineral, should we not be looking at a more diversified source?" said Chmelauskas of Western Lithium.

But with a current glut in lithium supply and new projects coming online in countries like Argentina, Australia, Finland, Canada and Serbia, U.S. entrants to the market risk a drying up of demand, Evans warned.

"You've got a dozen or more companies all planning to come through to production in three years, and you have to ask, 'Who is going to buy it?'" Evans said.

Many also question whether U.S. firms can produce lithium at a cost that competes with South American firms, which cheaply extract the mineral through evaporation of vast brine pools.

Western Lithium said it will produce lithium from its hectorite clay deposit more cheaply than it can be mined from hardrock ores such as those in Australia, but the firm will employ a pioneering technology that is yet to be commercially proven.

"It's going to be a very cutthroat market," said Brian Jaskula, a USGS lithium specialist. "Most of these projects -- 95 percent -- aren't going to work out."

Kings Valley benefits, challenges

Several large piles of clay and a few dirt roads are all that distinguishes the Western Lithium project from the surrounding ranchlands and potato fields overlooking the snow-capped Santa Rosa Mountains.

The site was first explored in the late 1970s by Chevron Corp., which drilled hundreds of holes in the soft clay in search of uranium to fuel nuclear reactors.

Clay cores are inventoried at a Western Lithium storage shed near Orovada, Nev. Lab tests indicate the company's Kings Valley site may be the fifth largest deposit of lithium in the world. Photo by Phil Taylor.

A former parent company of Western Lithium acquired the site in 2005, and the latter has since drilled about 125 additional holes to confirm the estimates of recoverable lithium. Phase one of the project could yield $263 million in annual revenue over the mine's 18-year lifetime, the company reported.

"The mining portion is going to be relatively simple," Chmelauskas said. Much of the lithium resource is located within 15 feet of the surface, he added, making for a relatively simple mining and reclamation operation.

The lithium-rich clay will be combined with gypsum and dolomite and roasted to 1,000 degrees. The material will then be leached with water and combined with sodium carbonate to produce lithium carbonate.

Western Lithium has worked with industry partners in Chile on plans for the roasting process, but no company has ever successfully commercialized the technology.

The firm is busy preparing an environmental analysis for the Bureau of Land Management on the anticipated impacts to species like bighorn sheep, pygmy rabbits and sage grouse, said Dennis Bryan, senior vice president of development.

State wildlife officials are concerned about any impact the project may have on the migration of bighorn sheep, a species the state reintroduced into the area in the 1980s. Six sheep have been collared to evaluate whether the proposed mine site would block the animals' movements from the Montana Mountains to the nearby Double H Mountains, but so far none of the animals have made the trek, Bryan said.

"When this 18-month study is done, we'll have a map that will tell us exactly where these animals go to lamb and where they go to winter," said Chris Healy, spokesman for the Nevada Department of Wildlife.

Bryan said the team is also working to map active habitat for sage grouse, a chicken-sized bird deemed worthy of federal protection under the Endangered Species Act but precluded from listing by Fish and Wildlife Service earlier this year (Greenwire, March 5).

BLM studies found two active leks within two miles of the mine site, but their location atop a large cliff makes it unlikely that mining activity would interfere with the bird's courting behaviors, said Kathleen Rehberg, a geologist at the agency's Winnemucca office.

"They're actually pretty much shielded by the topography," she said, adding that Western Lithium's exploration permit prohibits drilling during early morning breeding hours in the spring.

Emerging markets

Meanwhile, Western Lithium is seeking operating and investment partners to help move the $427 million project forward.

Major Uses of Lithium

Source: U.S. Geological Survey

Production costs are projected to be on par with the brine formations of South America, meaning the mine could be competitive with lithium producers in Chile and Argentina, according to the firm.

But the cost of lithium may not be a significant factor to battery manufacturers as the mineral represents less than 3 percent of a vehicle battery's total cost.

And despite a current lull in lithium demand, experts forecast steady growth with the increased sales of devices such as laptops, cellular phones and iPods, and the widespread adoption of battery-powered vehicles such as the Nissan Leaf and the Chevrolet Volt, both due out in the coming year.

Commercial-scale lithium-ion battery storage is another emerging market for suppliers, with Southern California Edison planning to deploy a massive 25-megawatt lithium-ion battery to stabilize power from new wind farms at a substation in the Tehachapi Mountains.

Demand for lithium could surge 40 percent by 2014, according to a recent report from Byron Capital Markets Inc. Galaxy Resources Ltd. earlier this year said demand for the battery material may gain 18 percent this year as consumption returns following the global economic slump.

"If some of these demand projections turn out to be true, we're going to need a whole lot of lithium," said Evans. "The more places to get it, the better."

Bo Elgby, manager of mine development at Western Lithium, said he likes the company's prospects but recognized that success is wholly dependent on the successful adoption of electric cars, which will require the rollout of thousands of charging stations and a major shift in cultural acceptance among consumers.